Apple's Eddy Cue Defends E-Book Sales

By

Chad Bray

Updated June 13, 2013 7:35 p.m. ET

A top Apple Inc. executive on Thursday defended the technology company's approach to selling electronic books when it first entered the market in 2010, even if consumers had to pay a higher price for some e-books at the time.

ENLARGE

Apple executive Eddy Cue, right, arrived at court Thursday with a member of the company's legal team.
Reuters

The Justice Department, in a civil trial being heard in federal court in Manhattan, has accused Apple of colluding with five major publishers to raise the price of e-books in 2010 in response to Amazon.com Inc.'s discount pricing of $9.99 for best-selling and newly released e-books.

On Thursday, Eddy Cue, an Apple executive who played a key role in negotiating the deals with the publishers, told the court that the company acted in the best interest of consumers, including providing the public a better technology interface and e-books that were found nowhere else at the time.

"We gave them [consumers] a great offer," Mr. Cue said.

The government has argued that prices for e-book best sellers rose to $12.99 and $14.99 following the alleged collusion, forcing consumers to pay "hundreds of millions of dollars more than they would have." The negotiations between Apple and the publishers took place over about six weeks in late 2009 and early 2010 ahead of the company's launch of its first iPad tablet.

The publishers have all since entered into settlements with the Justice Department as well as in a separate lawsuit by a group of state attorneys general. Apple denies the allegations that it engaged in price fixing and collusion.

Mr. Cue, who serves as Apple's senior vice president of Internet software and services, has been with Apple for more than two decades and worked closely with Steve Jobs, the company's former chief executive and co-founder who died in 2011.

As part of the evidence in the case, Justice Department lawyers introduced several emails written by Mr. Jobs in 2010, including communications while the company was negotiating with the publishers.

In one exchange from February 2010, Mr. Jobs responded to an unsolicited email from a college student who was complaining about the rising cost of e-books since Apple announced it would begin selling them.

"With Apple strong arming Amazon into raising e-book prices, this is detrimental to my reading as a college student. You have so much," the student wrote. "Wouldn't it be OK for us little guys to have something?"

"It's the publishers that are raising prices, not Apple," Mr. Jobs said.

In an email to Mr. Cue a few days earlier in January 2010, Mr. Jobs responded to a news report that publisher Macmillan and Amazon were in a dispute about pricing in which Macmillan titles were removed from the Amazon website: "Wow, we have really lit a fuse on a powder keg," Mr. Jobs wrote.

In a group email at Apple the next day, Mr. Jobs said: "We have definitely helped stir things up in the publishing world."

The civil antitrust trial against Apple, which began June 3, is expected to last about three weeks and is being heard by U.S. District Judge Denise Cote, who said in May that she believed the government will likely be able to prove its case. Apple last year settled an antitrust case with the European Commission over e-book pricing but didn't admit any wrongdoing.

The five publishing companies—HarperCollins, Lagardere SCA's Hachette, CBS Corp.'s Simon & Schuster, Pearson PLC's Penguin Group (USA) and Georg von Holtzbrinck GmbH's Macmillan—have terminated their 2010 agreements with Apple as part of the settlements. HarperCollins is owned by News Corp., as is The Wall Street Journal.

Mr. Cue showed a feisty side Thursday as Lawrence Buterman, a Justice Department lawyer, pressed him on whether Apple's decision to shift to a so-called agency model in which publishers, rather retailers, set the price of e-books, was in the best interest of the general public.

As part of its deals with the publishers, Apple received a 30% commission on each book sold and was allowed to match the price of a competitor if the competitor's price was lower.

"I didn't raise prices," Mr. Cue said.

"You just gave them [the publishers] the opportunity to raise prices?" Mr. Buterman said.

"The publishers set the prices," Mr. Cue said.

Apple's lawyer has disputed that the company colluded with the publishers, saying it negotiated aggressively.

Mr. Cue said Thursday that he wasn't aware that the publishers were meeting to discuss their pacts with Apple, prior to the government filing its lawsuit last year.

"I struggled and fought with them about many, many things," Mr. Cue said. "If they had been talking to each other, I would assume I would've had a much easier time getting those deals done."

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